The Emergence of Forward Guidance As a Monetary Policy Tool
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Measuring the Natural Rate of Interest: International Trends and Determinants
FEDERAL RESERVE BANK OF SAN FRANCISCO WORKING PAPER SERIES Measuring the Natural Rate of Interest: International Trends and Determinants Kathryn Holston and Thomas Laubach Board of Governors of the Federal Reserve System John C. Williams Federal Reserve Bank of San Francisco December 2016 Working Paper 2016-11 http://www.frbsf.org/economic-research/publications/working-papers/wp2016-11.pdf Suggested citation: Holston, Kathryn, Thomas Laubach, John C. Williams. 2016. “Measuring the Natural Rate of Interest: International Trends and Determinants.” Federal Reserve Bank of San Francisco Working Paper 2016-11. http://www.frbsf.org/economic-research/publications/working- papers/wp2016-11.pdf The views in this paper are solely the responsibility of the authors and should not be interpreted as reflecting the views of the Federal Reserve Bank of San Francisco or the Board of Governors of the Federal Reserve System. Measuring the Natural Rate of Interest: International Trends and Determinants∗ Kathryn Holston Thomas Laubach John C. Williams December 15, 2016 Abstract U.S. estimates of the natural rate of interest { the real short-term interest rate that would prevail absent transitory disturbances { have declined dramatically since the start of the global financial crisis. For example, estimates using the Laubach-Williams (2003) model indicate the natural rate in the United States fell to close to zero during the crisis and has remained there into 2016. Explanations for this decline include shifts in demographics, a slowdown in trend productivity growth, and global factors affecting real interest rates. This paper applies the Laubach-Williams methodology to the United States and three other advanced economies { Canada, the Euro Area, and the United Kingdom. -
Nomination of Ben S. Bernanke
S. HRG. 111–206 NOMINATION OF BEN S. BERNANKE HEARING BEFORE THE COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS UNITED STATES SENATE ONE HUNDRED ELEVENTH CONGRESS FIRST SESSION ON THE NOMINATION OF BEN S. BERNANKE, OF NEW JERSEY, TO BE CHAIRMAN OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM DECEMBER 3, 2009 Printed for the use of the Committee on Banking, Housing, and Urban Affairs ( Available at: http://www.access.gpo.gov/congress/senate/senate05sh.html U.S. GOVERNMENT PRINTING OFFICE 54–239 PDF WASHINGTON : 2010 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS CHRISTOPHER J. DODD, Connecticut, Chairman TIM JOHNSON, South Dakota RICHARD C. SHELBY, Alabama JACK REED, Rhode Island ROBERT F. BENNETT, Utah CHARLES E. SCHUMER, New York JIM BUNNING, Kentucky EVAN BAYH, Indiana MIKE CRAPO, Idaho ROBERT MENENDEZ, New Jersey BOB CORKER, Tennessee DANIEL K. AKAKA, Hawaii JIM DEMINT, South Carolina SHERROD BROWN, Ohio DAVID VITTER, Louisiana JON TESTER, Montana MIKE JOHANNS, Nebraska HERB KOHL, Wisconsin KAY BAILEY HUTCHISON, Texas MARK R. WARNER, Virginia JUDD GREGG, New Hampshire JEFF MERKLEY, Oregon MICHAEL F. BENNET, Colorado EDWARD SILVERMAN, Staff Director WILLIAM D. DUHNKE, Republican Staff Director MARC JARSULIC, Chief Economist AMY FRIEND, Chief Counsel JULIE CHON, Senior Policy Adviser JOE HEPP, Professional Staff Member LISA FRUMIN, Legislative Assistant DEAN SHAHINIAN, Senior Counsel MARK F. OESTERLE, Republican Chief Counsel JEFF WRASE, Republican Chief Economist DAWN RATLIFF, Chief Clerk DEVIN HARTLEY, Hearing Clerk SHELVIN SIMMONS, IT Director JIM CROWELL, Editor (II) CONTENTS THURSDAY, DECEMBER 3, 2009 Page Opening statement of Chairman Dodd ................................................................. -
Jerome H Powell: Challenges for Monetary Policy
For release on delivery 10:00 a.m. EDT (8:00 a.m. local time) August 23, 2019 Challenges for Monetary Policy Remarks by Jerome H. Powell Chair Board of Governors of the Federal Reserve System at “Challenges for Monetary Policy,” a symposium sponsored by the Federal Reserve Bank of Kansas City Jackson Hole, Wyoming August 23, 2019 This year’s symposium topic is “Challenges for Monetary Policy,” and for the Federal Reserve those challenges flow from our mandate to foster maximum employment and price stability. From this perspective, our economy is now in a favorable place, and I will describe how we are working to sustain these conditions in the face of significant risks we have been monitoring. The current U.S. expansion has entered its 11th year and is now the longest on record. 1 The unemployment rate has fallen steadily throughout the expansion and has been near half-century lows since early 2018. But that rate alone does not fully capture the benefits of this historically strong job market. Labor force participation by people in their prime working years has been rising. While unemployment for minorities generally remains higher than for the workforce as a whole, the rate for African Americans, at 6 percent, is the lowest since the government began tracking it in 1972. For the past few years, wages have been increasing the most for people at the lower end of the wage scale. People who live and work in low- and middle-income communities tell us that this job market is the best anyone can recall. -
What Have We Learned Since October 1979?
Panel Discussion I Moderation.” Recessions have become less fre- What Have We Learned Since quent and milder, and quarter-to-quarter volatility October 1979? in output and employment has declined signifi- cantly as well. The sources of the Great Moderation Ben S. Bernanke remain somewhat controversial, but, as I have argued elsewhere, there is evidence for the view he question asked of this panel is, that improved control of inflation has contributed “What have we learned since October in important measure to this welcome change in 1979?” The evidence suggests that we the economy (Bernanke, 2004). Paul Volcker and have learned quite a bit. Most notably, his colleagues on the Federal Open Market Com- Tmonetary policymakers, political leaders, and mittee deserve enormous credit both for recogniz- the public have been persuaded by two decades ing the crucial importance of achieving low and of experience that low and stable inflation has stable inflation and for the courage and persever- very substantial economic benefits. ance with which they tackled America’s critical This consensus marks a considerable change inflation problem. from the views held by many economists at the I could say much more about Volcker’s time that Paul Volcker became Fed Chairman. In achievement and its lasting benefits, but I am sure 1979, most economists would have agreed that, that many other speakers will cover that ground. in principle, low inflation promotes economic Instead, in my remaining time, I will focus on growth and efficiency in the long run. However, some lessons that economists have drawn from many also believed that, in the range of inflation the Volcker regime regarding the importance of rates typically experienced by industrial countries, credibility in central banking and how that credi- the benefits of low inflation are probably small— bility can be obtained. -
No 523 the Evolution of Inflation Expectations in Canada and the US by James Yetman
BIS Working Papers No 523 The evolution of inflation expectations in Canada and the US by James Yetman Monetary and Economic Department October 2015 JEL classification: E31, E58 Keywords: Inflation expectations, decay function, inflation targeting BIS Working Papers are written by members of the Monetary and Economic Department of the Bank for International Settlements, and from time to time by other economists, and are published by the Bank. The papers are on subjects of topical interest and are technical in character. The views expressed in them are those of their authors and not necessarily the views of the BIS. This publication is available on the BIS website (www.bis.org). © Bank for International Settlements <2015>. All rights reserved. Brief excerpts may be reproduced or translated provided the source is stated. ISSN 1020-0959 (print) ISSN 1682-7678 (online) The evolution of inflation expectations in Canada and the US James Yetman1 Abstract We model inflation forecasts as monotonically diverging from an estimated long-run anchor point towards actual inflation as the forecast horizon shortens. Fitting the model with forecaster-level data for Canada and the US, we identify three key differences between the two countries. First, the average estimated anchor of US inflation forecasts has tended to decline gradually over time in rolling samples, from 3.4% for 1989-1998 to 2.2% for 2004-2013. By contrast, it has remained close to 2% since the mid-1990 for Canadian forecasts. Second, the variance of estimates of the long-run anchor is considerably lower for the panel of Canadian forecasters than US ones following Canada’s adoption of inflation targets. -
The Political Economy of the Bretton Woods Agreements Jeffry Frieden
The political economy of the Bretton Woods Agreements Jeffry Frieden Harvard University December 2017 1 The Allied representatives who met at Bretton Woods in July 1944 undertook an unprecedented endeavor: to plan the international economic order. To be sure, an international economy has existed as long as there have been nations, and there had been recognizable international economic orders in the recent past – such as the classical era of the late nineteenth and early twentieth century. However, these had emerged organically from the interaction of technological, economic, and political developments. By the same token, there had long been international conferences and agreements on economic issues. Nonetheless, there had never been an attempt to design the very structure of the international economy; indeed, it is unlikely that anybody had ever dreamed of trying such a thing. The stakes at Bretton Woods could not have been higher. This essay analyzes the sources of the Bretton Woods Agreements and the system they created. The system grew out of the international economic experiences of the previous century, as understood through the lens of both history and theory. It was profoundly influenced by the domestic politics of the countries that created the system, in particular by the United States and the United Kingdom. It was molded by the conflicts, compromises, and agreements among the signatories to the agreement, as they bargained their way up to and through the Bretton Woods Conference. The results of those complex domestic and international interactions have shaped the world economy for the past 75 years. 2 The historical setting The negotiators at Bretton Woods could look back on recent history to help guide their efforts. -
Reforming the Rules That Govern the Fed
Reforming the Rules That Govern the Fed Charles W. Calomiris Abstract The Fed has achieved both of its central objectives – price stability and financial stability – in only about a quarter of its years of operation. What reforms would be likely to improve that performance? This article focuses on two problems that have plagued the Fed throughout its history: adherence to bad ideas, especially to influence from intellectual fads in macroeconomics, which have produced major policy errors; and politicization of the Fed, which leads it to pursue objectives other than price stability and financial stability. Several reforms are proposed to the structure and governance of the Fed, and its policy mandates, which would promote greater diversity of thought and independence from political pressures, which in turn would insulate the Fed from political pressures and make its thinking less susceptible to intellectual fads. Taking Stock The Fed is celebrating its 100th birthday. The celebration has been muted, sometimes even somber, and for good reason: the Fed has achieved both of its central objectives – price stability and financial stability – in only about a quarter of its years of operation. There is one Fed leader, however, whose record receives universal accolades. In one Fed cartoon prepared for high school students, Paul Volcker is lovingly portrayed as a superhero wearing a red cape. Few would object to that characterization. Over the 100-year history of Fed monetary policy, Mr. Volcker’s combination of integrity, judgment, and courage stand alone. Integrity because, prior to his appointment, he leveled with President Carter about his intention to attack inflation aggressively. -
The Discount Window Refers to Lending by Each of Accounts” on the Liability Side
THE DISCOUNT -WINDOW David L. Mengle The discount window refers to lending by each of Accounts” on the liability side. This set of balance the twelve regional Federal Reserve Banks to deposi- sheet entries takes place in all the examples given in tory institutions. Discount window loans generally the Box. fund only a small part of bank reserves: For ex- The next day, Ralph’s Bank could raise the funds ample, at the end of 1985 discount window loans to repay the loan by, for example, increasing deposits were less than three percent of total reserves. Never- by $1,000,000 or by selling $l,000,000 of securities. theless, the window is perceived as an important tool In either case, the proceeds initially increase reserves. both for reserve adjustment and as part of current Actual repayment occurs when Ralph’s Bank’s re- Federal Reserve monetary control procedures. serve account is debited for $l,000,000, which erases the corresponding entries on Ralph’s liability side and Mechanics of a Discount Window Transaction on the Reserve Bank’s asset side. Discount window lending takes place through the Discount window loans, which are granted to insti- reserve accounts depository institutions are required tutions by their district Federal Reserve Banks, can to maintain at their Federal Reserve Banks. In other be either advances or discounts. Virtually all loans words, banks borrow reserves at the discount win- today are advances, meaning they are simply loans dow. This is illustrated in balance sheet form in secured by approved collateral and paid back with Figure 1. -
Former Fed Chairman Ben Bernanke Reflects on His Career, the Economy, and the Way Forward
FORMER FED CHAIRMAN BEN BERNANKE REFLECTS ON HIS CAREER, THE ECONOMY, AND THE WAY FORWARD Dr. Ben S. Bernanke Distinguished Fellow in Residence, Economic Studies, Brookings Institution Former Chairman, Federal Reserve Board of Governors Author: The Courage to Act: A Memoir of a Crisis and Its Aftermath (W.W. Norton and Company, 2015) February 10, 2016 Excerpts from Dr. Bernanke's Remarks Do you miss the power when you were running the Fed and running the financial world? No, not at all, because the power – [laughter].... Now I can get the newspaper in the morning, you know, look at the story and say, gee, that’s a significant problem. Somebody ought to do something about that. [Laughter, chuckles.] Do you ever say, well, geez, maybe I’ll just send an email to Janet Yellen1, say, here’s some advice, or do you stay out of that? No, I wouldn’t do that. In high school, you got a 1590 out of 1600 on your SATs, the highest in the state. Missed one question. You reveal in your book, that going to Harvard was not something that was on your mind, but an African-American who had befriended you had gone to Harvard, really persuaded you.... His name is Ken Manning... His family knew our family.... And Ken was and is a very brilliant, precocious man. And he had gone...to some kind of program, which got him eventually into Harvard, and then he went to Harvard Graduate School, and now he’s an MIT professor. And he took it on himself, you know, to persuade my parents that I should go to Harvard. -
"What Can an Economic Adviser Do When the President Adopts Bad Economic Policies?"
"What Can An Economic Adviser Do When the President Adopts Bad Economic Policies?" Jeffrey Frankel, Harpel Professor, KSG, Harvard University The Pierson Lecture, Swarthmore, April 21, 2005 Summary: What would you do if you were appointed Chair of the Council of Economic Advisers under a president who was committed to one or more specific policies that you considered to be inconsistent with good economics? A look at the experiences of your predecessors over the last 40 years might help illustrate your alternative options. The lecture will review the history. It will then go on to suggest that such conflicts should be particularly acute in the current Administration. The reason is that Republican presidents have increasingly adopted policies-- with regard particularly to budget deficits, trade, the size of government, and inflation -- that deviate from the principles of good economics, and that used to be considered the weaknesses of Democratic presidents. It is a great honor to be giving the Pierson lecture.1 I must confess that I never had Frank Pierson for a course. But he was the senior eminence of the Economics Department when I attended Swarthmore in the early 1970s, having already been associated with the department more than 40 years. In that time, Frank Pierson was known as one of the last professors who still regularly held his honors seminars at his house, with an impressive series of desserts, including make-your-own sundaes, and Irish coffee. The early 1970s were a volatile time of course, with the War in Viet Nam still on.2 In 1972 the big split on campus was between those of us working for McGovern on the left, and the 1 The author wishes to acknowledge help from Peter Jaquette, Arnold Kling, Jeff Miron, Stephen O’Connell, Francis Bator, Michael Boskin, David Cutler, Jason Furman, Gilbert Heebner, William Gale, Jeff Liebman, Peter Orszag, Roger Porter, Charles Schultze, Phillip Swagel, Laura Tyson, Murray Weidenbaum, Marina Whitman, and Janet Yellen. -
Evaluating Central Banks' Tool
Evaluating Central Banks' Tool Kit: Past, Present, and Future∗ Eric Sims Jing Cynthia Wu Notre Dame and NBER Notre Dame and NBER First draft: February 28, 2019 Current draft: May 21, 2019 Abstract We develop a structural DSGE model to systematically study the principal tools of unconventional monetary policy { quantitative easing (QE), forward guidance, and negative interest rate policy (NIRP) { as well as the interactions between them. To generate the same output response, the requisite NIRP and forward guidance inter- ventions are twice as large as a conventional policy shock, which seems implausible in practice. In contrast, QE via an endogenous feedback rule can alleviate the constraints on conventional policy posed by the zero lower bound. Quantitatively, QE1-QE3 can account for two thirds of the observed decline in the \shadow" Federal Funds rate. In spite of its usefulness, QE does not come without cost. A large balance sheet has consequences for different normalization plans, the efficacy of NIRP, and the effective lower bound on the policy rate. Keywords: zero lower bound, unconventional monetary policy, quantitative easing, negative interest rate policy, forward guidance, quantitative tightening, DSGE, Great Recession, effective lower bound ∗We are grateful to Todd Clark, Drew Creal, and Rob Lester, as well as seminar participants at the Federal Reserve Banks of Dallas and Cleveland and the University of Wisconsin-Madison, for helpful comments. Correspondence: [email protected], [email protected]. 1 Introduction In response to the Financial Crisis and ensuing Great Recession of 2007-2009, the Fed and other central banks pushed policy rates to zero (or, in some cases, slightly below zero). -
What Have We Learned Since October 1979? by Alan S. Blinder Princeton
What Have We Learned since October 1979? by Alan S. Blinder Princeton University CEPS Working Paper No. 105 April 2005 “What Have We Learned since October 1979?” by Alan S. Blinder Princeton University∗ My good friend Ben Bernanke is always a hard act to follow. When I drafted these remarks, I was concerned that Ben would take all the best points and cover them extremely well, leaving only some crumbs for Ben McCallum and me to pick up. But his decision to concentrate on one issue—central bank credibility—leaves me plenty to talk about. Because Ben was so young in 1979, I’d like to begin by emphasizing that Paul Volcker re-taught the world something it seemed to have forgotten at the time: that tight monetary policy can bring inflation down at substantial, but not devastating, cost. It seems strange to harbor contrary thoughts today, but back then many people believed that 10% inflation was so deeply ingrained in the U.S. economy that we might to doomed to, say, 6-10% inflation for a very long time. For example, Otto Eckstein (1981, pp. 3-4) wrote in a well-known 1981 book that “To bring the core inflation rate down significantly through fiscal and monetary policies alone would require a prolonged deep recession bordering on depression, with the average unemployment rate held above 10%.” More concretely, he estimated that it would require 10 point-years of unemployment to bring the core inflation rate down a single percentage point,1 which is about five times more than called for by the “Brookings rule of thumb.”2 In the event, the Volcker disinflation followed the Brookings rule of thumb rather well.